CFN ENTERPRISES INC. The following information should be read in conjunction with our financial statements and accompanying notes included in this Annual Report on Form 10-K.
Overview
We own and operate CNP Operating, a leading CBD manufacturer vertically integrated with a 360 degree approach to the processing of high quality CBD products designed for growers, pharmaceutical, wellness providers, and retailers' needs, and a cannabis industry focused sponsored content and marketing business, or the CFN Business. Our ongoing operations currently consist primarily of CNP Operating and the CFN Business and we will continue to pursue strategic transactions and opportunities. We are currently in the process of launching an e-commerce network focused on the sale of general wellness CBD products.
CNP Operating provides toll processing services which includes extraction, distillation, remediation, isolation and chromatography. CNP Operating has a professional, organized and dedicated team with 30 years of combined experience. CNP Operating's state of the art facility has 30,000 square feet filled with proprietary technology distillation equipment, in house lab testing, distribution warehouse and white labelling product formulation and design.
The CFN Business generates revenue through sponsored content, including articles, press releases, videos, podcasts, advertisements and other media, email advertisements and other marketing campaigns run on behalf of public and private companies in the cannabis industry, helping them reach accredited, retail and institutional investors. Most revenue is generated through contracts involving a monthly cash payment.
The CFN Business' primary expenses come from advertising on platforms like Twitter and Facebook and from employee salaries and contractor fees. The CFN Business' content is primarily produced by a team of freelance writers and video content is produced through various vendors. The CFN Business also incurs hosting and development costs associated with maintaining and improving its website, web applications, and mobile applications. The CFN Business operates several media platforms, including CannabisFN.com, the CannabisFN iOS app, the CFN Media YouTube channel, the CFN Media podcast, and other venues. These properties are designed to educate and inform investors interested in the cannabis industry, as well as provide a platform for the clients of the CFN Business to reach investors. The CFN Business distributes content across numerous online platforms, including the CannabisFN.com website, press releases, financial news syndicates, search engines, YouTube, iTunes, Twitter, Instagram, Facebook, LinkedIn, and others.
The CFN Business targets the legal cannabis industry. According to
The CFN Business competes with other public relations firms for clients, as well
as online publishers for investors. Public relations competition includes
investor awareness firms like
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Results of Operations
The following are the results of our operations for the year ended
For the Year Ended
December 31, December 31,
2021 2020 Change
Net revenues $ 3,157,783 $ 506,490 $ 2,217,929
Cost of revenue 3,539,636 536,738 3,025,445
Gross loss (381,853 ) (30,248 ) (807,516 )
Operating expenses:
Impairment charge 9,355,657
Selling, general and administrative 2,691,258 1,199,410 10,287,973
Total operating expenses 12,046,915 1,199,410 10,287,973
Loss from operations (12,428,768 ) (1,229,658 ) 11,095,488
Other income (expense):
Loss on extinguishment of debt (172,500 ) (172,500 )
Unrealized gain (loss) on investments (45,658 ) (40,180 )
Forgiveness of SBA Loan 526,000 10,000 516,000
Interest expense (93,170 ) (51,615 ) (41,555 )
Interest income 10,001 19 9,992
Total other income (expense) 224,683 (41,596 ) (271,127 )
Net loss from continuing operations (12,204,085 ) (1,271,254 ) 10,824,361
Net Revenues
The Company's revenues are generated from the sale of promotional service packages to customers ranging from 3 to 6 months. The Company offers different packages tailored to the type and stage of the potential customer, such as public companies looking to increase their shareholder base, as well as private companies potentially looking to go public and attract capital and publicity.
During the twelve months ended
The Company's subsidiary CNP Operating generated revenue of
Our revenue for 2021 also included
Costs of Revenue
The costs of revenue consist primarily of labor, fees paid for production of content for clients and the costs of placement of the content on various platforms. In 2021, the contracts required more production services and related labor than the contracts in 2020. As a result, the cost of revenue in 2021 was higher as a percentage of the revenue recognized during the year.
The Company's cost of revenue for the year ended
Operating Expenses
The Company's operating expenses for the year ended
Other income increased during the year ended
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Liquidity and Capital Resources
On
These matters, among others, raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
The following is a summary of our cash flows from operating, investing and
financing activities for the year ended
Year Ended
December 31, December 31,
2021 2020
Cash flows used in operating activities $ (344,214 ) $ (483,522 )
Cash flows provided by (used in) investing
activities $ 22,885 $ (206,634 )
Cash flows provided by (used in) financing
activities $ 331,243 $ 763,000 As of
Net cash used in operating activities was
Net cash provided by investing activities
Net cash provided by financing activities was
Description of Indebtedness
On
In connection with the promissory note on
The note was discounted by
On
On
On
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On
On
On
On
On
On
The Company's subsidiary CNP Operating also entered into a note payable during
2020 with the landlord for additional improvements to the facility in
On
Future scheduled maturities of long-term debt are as follows.
Year Ended
December 31,
2022 $ 2,219,882
2022 657,621
2023 26,047
2024 509,163
2025 3,153
Thereafter 121,706
Total $ 3,537,573 The aggregate current portion of long-term debt as of
Obligations Under Preferred Stock
On
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On
Other outstanding obligations at
Warrants
As of
Options
As of
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
COVID-19
In
Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
Critical Accounting Policies Accounts Receivable
The Company's account receivables are due from customers relating to contracts
to provide investor relation services. Collateral is currently not required. The
Company also maintains allowances for doubtful accounts for estimated losses
resulting from the inability of the Company's customers to make payments. The
Company periodically reviews these estimated allowances, including an analysis
of the customers' payment history and creditworthiness, the age of the trade
receivable balances and current economic conditions that may affect a customer's
ability to make payments as well as historical collection trends for its
customers as a whole. Based on this review, the Company specifically reserves
for those accounts deemed uncollectible or likely to become uncollectible. When
receivables are determined to be uncollectible, principal amounts of such
receivables outstanding are deducted from the allowance. The allowance for
doubtful accounts as of
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification, or ASC, 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
Subsequent to the closing of the Emerging Growth Agreement on
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Income Taxes
Income taxes are accounted for in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives of five years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized.
Goodwill
The Company's goodwill represents the excess of purchase price over tangible and
intangible assets acquired, less liabilities assumed arising from business
acquisitions.
Investment
On
Long-Lived Assets
In accordance with ASC 360-10, the Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that their net
book value may not be recoverable. When such factors and circumstances exist,
the Company compares the projected undiscounted future cash flows associated
with the related asset or group of assets over their estimated useful lives
against their respective carrying amount. Impairment, if any, is based on the
excess of the carrying amount over the fair value, based on market value when
available, or discounted expected cash flows, of those assets and is recorded in
the period in which the determination is made. There was an impairment charge of
Basic and Diluted Earnings Per Share
Basic earnings per share are calculated by dividing income available to
stockholders by the weighted-average number of common shares outstanding during
each period. Diluted earnings per share are computed using the weighted average
number of common and dilutive common share equivalents outstanding during the
period. Dilutive common share equivalents consist of shares issuable upon the
exercise of stock options, warrants and preferred stock (calculated using the
modified-treasury stock method). As of
Share-Based Payment
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.
The Company has elected to use the Black-Scholes option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
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Common stock awards
The Company has granted common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or the fair value of the awards granted. The fair value of the awards is recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded on the consolidated statement of comprehensive loss in the same manner and charged to the same account as if such settlements had been made in cash.
Warrants
In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants are recorded at fair value as expense over the requisite service period or at the date of issuance, if there is not a service period.
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